India is experiencing high inflation in contrast to China and South Korea, as
can be seen in the first chart that shows the year over year percentage
changes in the consumer price indexes of the three countries. The
financial crisis beginning in 2008 and subsequent recession that led to
lower inflation in China and South Korea had the opposite effect in
India. Although erratic, the trend in inflation in India has been
steadily upward. In May, the latest data available for India,
overall inflation was 13.68%, compared to 3.1% in China and 2.66% in
South Korea.

The Bank of India has already raised its policy rate in three successive increases of 25 basis
points from 4.75% to 5.5% on July 2, 2010. With strikes protesting
the rise in prices and demands for higher wages, a 50 basis point
increase to 6.0% is generally expected on July 27, 2010. The policy
rate in Korea was held at 2.00% from February, 2009 until this month when
it was raised to 2.25%. The rate in China was lowered to 5.31% in
December, 2009 and has remained there. The policy rates for the
three countries are shown in the second chart.